The £100K Tax Trap: Why a Pay Rise Can Cost You 60%
By calculatemysalary.co.uk Editorial Team
Earning between £100,000 and £125,140? You're paying a 60% marginal tax rate. Here's how the personal allowance taper works and what you can do about it.
If you earn £100,000 in the UK, the government starts clawing back your Personal Allowance. For every £2 you earn above £100k, you lose £1 of tax-free income — until at £125,140, your entire £12,570 allowance is gone.
The result? An effective marginal tax rate of 60% on income between £100,000 and £125,140. That's higher than the 45% additional rate that applies to earnings over £125,140.
How the 60% Rate Works
You might assume the highest marginal income tax rate in the UK is 45%. For most income levels, you'd be right. But the personal allowance taper creates a hidden band where you're effectively taxed at 60%.
Here's the maths. For each extra £1 you earn over £100,000:
- You pay 40% income tax on that £1 (you're in the higher rate band) = 40p
- You lose 50p of Personal Allowance (the £1-for-£2 taper)
- That 50p was previously tax-free, but now it's taxable — and because your basic rate band is already fully used, it's taxed at 40% = 20p
Total tax on that £1: 60p. That's a 60% marginal income tax rate. Add 2% employee National Insurance and the effective rate is 62%.
Worked Example: £100,000 vs £110,000
Let's put real numbers on this for 2025/26.
At £100,000 (full Personal Allowance of £12,570):
| Amount | |
|---|---|
| Taxable income (£100,000 − £12,570) | £87,430 |
| Basic rate: 20% on first £37,700 | £7,540 |
| Higher rate: 40% on remaining £49,730 | £19,892 |
| Income tax | £27,432 |
| Employee NI (8% + 2%) | £4,010.60 |
| Total deductions | £31,442.60 |
| Take-home pay | £68,557.40 |
At £110,000 (Personal Allowance reduced to £7,570):
You've earned £10,000 over the £100k threshold. Your PA drops by £5,000 (half of £10,000).
| Amount | |
|---|---|
| Taxable income (£110,000 − £7,570) | £102,430 |
| Basic rate: 20% on first £37,700 | £7,540 |
| Higher rate: 40% on remaining £64,730 | £25,892 |
| Income tax | £33,432 |
| Employee NI (8% + 2%) | £4,210.60 |
| Total deductions | £37,642.60 |
| Take-home pay | £72,357.40 |
The damage: you earned £10,000 more but kept only £3,800 of it. The other £6,200 went to tax and NI — an effective marginal rate of 62%.
Why It's Called a "Cliff"
Because the jump in your effective tax rate is sudden. At £99,999 your marginal income tax rate is 40%. At £100,001 it's 60%. There's no gradual transition — the taper just switches on.
It gets worse if you're also repaying a student loan (9%) or are affected by the High Income Child Benefit Charge. In those cases your real marginal rate can exceed 70%.
What You Can Do About It
If your income falls in the £100k–£125,140 range, there are legitimate ways to reduce your adjusted net income and restore some or all of your Personal Allowance.
Pension Contributions
The single most effective option. If you contribute to a pension through salary sacrifice, your taxable income drops pound for pound.
Example: you earn £110,000 and sacrifice £10,000 into your pension. Your adjusted income drops to £100,000, your full Personal Allowance is restored, and you save £6,000 in income tax plus £200 in employee NI. The £10,000 goes into your pension untaxed. Your employer also saves £1,500 in employer NI on that amount — some employers pass part of that saving back to you.
Every £1 you sacrifice from gross pay in this band saves you roughly 62p in tax and NI. The effective cost of putting £1 into your pension is just 38p.
The annual pension allowance is £60,000 for 2025/26, so there's plenty of headroom. See GOV.UK on pension tax relief for details.
Gift Aid Donations
Charitable donations through Gift Aid reduce your adjusted net income. If you already donate to charity, make sure you're claiming the higher rate relief through Self Assessment — many people forget this step.
Other Options
- Cycle to work schemes and workplace nursery provision reduce taxable income
- Allowable expenses — claim these if you have qualifying job-related costs
- Timing income — if you have control over when bonuses or freelance income arrive, keeping a single tax year under £100k preserves your full allowance
Check Your Numbers
If you're anywhere near the £100k mark, run the numbers before accepting a pay rise or bonus in cash. Sometimes negotiating extra pension contributions instead puts significantly more money in your pocket over the long run.
Use our salary calculator to model different scenarios — adjust your income and pension contributions to see exactly how the taper affects your take-home pay.